Wheat markets, El Niño top Texas Wheat Symposium

The Texas Wheat Symposium, Nov. 28, in Amarillo, Texas, brought farmers out to the Amarillo Farm Show to hear updates on markets, policy and weather.

Mark Welch, Texas A&M University AgriLife Extension economist, gave a market outlook for 2019.

Welch said world consumption continues to be very strong in the grain complex, despite the drought of 2012 and the economic slump of 2013 and 2014. There is a strong correlation between the per capita grain consumption pattern and the emerging economies of Brazil, Russia, India, China, Mexico and Southeast Asia.

“In countries like Indonesia, Vietnam, Philippines, Thailand and Malaysia, that growth took that pivot in the late 1990s and early 2000s and they had money to spend on food, fiber and fuel,” Welch said. “There’s a strong correlation to grain consumption. And that’s about one-half of the world’s population in those few economies.” Better access to those markets would mean better prices for American farmers.

However, the International Monetary Fund’s latest projection in October showed that economic growth somewhat stabilizing, due to current trade disruptions and tariff disputes, he cautioned.

When you look at the world wheat production side, the 2018 crop is predicted to be down somewhat, primarily due to production drop in Europe and the former Soviet Union. Australia’s portion of the wheat export pie will likely be smaller just because its production has been curtailed because of drought, Welch predicted.

The global wheat stocks-to-use ratio at the end of the 2018 marketing year is estimated to be 131 days, Welch said. That rivals the highest stock levels seen in the early 2000s.

But right now the biggest elephant in the markets is China, which emphasizes self-sufficiency in growing its food commodities and only importing feed grains and cotton, Welch said. When China released its revised production numbers in November, its ending stocks now account for half of the world’s wheat stocks this current marketing year.

“If correct, China would hold more in wheat stocks than what they consume in a year,” Welch explained. “That’s 365 days of wheat.” And at this point, China virtually exports zero bushels of wheat, so those stocks aren’t on the market.

“The degree they could influence prices are minimal as long as there are no infrastructure changes,” he added. But China is pushing for an infrastructure initiative called One Belt Road, to re-establish the trade routes of the historic Silk Road from China to Europe and parts of the Middle East.

“If that goes as planned, it will shift trade flows both ways, into and out of China,” Welch explained.

The extent of corn’s influence on wheat prices will depend on production keeping up with consumption patterns, Welch added. Even with higher yielding hybrids, corn production in the U.S. is barely keeping up with consumption patterns.

“We had 40 days of stocks in 2018,” he said. From the November World Agriculture Supply and Demand Estimate report, an average corn yield of 178.9 bushels per acre gives the U.S. just 42 days of use on hand.

“If we had 172-bushel corn, which is the third highest yield in history, all things equal, that would have led to just a 28-day supply,” he said. It’s a fine line of corn supply and demand he explained. He predicts that corn prices will be slightly higher in 2019, due to market uncertainty and predicted yields.

This all means that the July Kansas City hard red winter wheat futures price model Welch predicts might reach $4.77 per bushel, would be flat with last year’s price model.

“Our days of use will be down, but production will be up,” he said. This is with a nearby corn future at 2018 harvest at about $3.67 per bushel. It all adds up to a flat price response by the time we get to wheat harvest, he said. And, if you plug in $4 corn instead, it might get us back to about $5 wheat, Welch explained.

The takeaway for wheat farmers is that wheat prices will likely be flat in 2019, and that means it’s even more critical that they know their cost of production and lock in their profitable prices when they see them.

Weather’s impact

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Of course, Mother Nature may have something to say about wheat profits in 2019, and Doug Weber, lead forecaster for the Amarillo National Weather Service office, spoke about the potential impacts of an El Niño weather pattern on winter wheat this winter and next spring.

When Equatorial Sea Surface temperatures are above average across most of the Pacific, we see a change the jet stream patterns of North America. An El Niño typically pushes winds down from the north deeper into the Great Plains, bringing extra moisture events through the winter and spring.

The extent of the El Niño is what climatologists are still unsure of as of yet. The official forecast from the Climate Prediction Center as of Nov. 8 favors the formation of a weak El Niño, at an 80 percent chance through the Northern Hemisphere’s winter and a 55 to 60 percent chance it lasts through the spring. The next update will be released Dec. 13.

An El Niño like this could mean big winter snowstorms, Weber said, upwards of 4 to 8 inches above normal snowfall for Amarillo.

“The largest snowfall total recorded was 47.9 inches in 1983, and that was a strong El Niño year,” he said. Considering Amarillo already saw its first snowfall for the year, Weber said farmers should prepare for more snow events of measurable snow than they saw last year.

Going into spring, an El Niño might also mean fewer fire weather outlooks, a welcome break from the last three years of massive wildfires in the Plains. However, farmers and ranchers should be alert to more severe thunderstorms and weather events from February into March, Weber warned. He gave the example of the spring of 2015, which was an active El Niño spring and saw several severe weather events.

Weber warned farmers that these are the best predictions as of now, and to fully keep track of weather and its potential affects on crops and livestock they should keep tabs on the Climate Prediction Center’s updates at www.cpc.ncep.noaa.gov.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].